No Down? You May Not Need One

The mortgage community is finally beginning to bestow some benefits on those would-be home buyers who go to work everyday and pay their bills on time.

Until recently, lenders’ efforts to boost homeownership were concentrated almost exclusively on buyers who had poor credit or none at all, who didn’t earn enough to gain approval at normal underwriting debt-to-income ratios or who didn’t have two pennies to rub together, let alone two nickels.

In so doing, they all but ignored the majority of working-class families who have managed to keep their financial houses in order.

Fannie Mae, a major supplier of funds for home loans, is now asking lenders to offer those home buyers a mortgage without requiring them to put any of their own money into the deal.

Under the so-called Flex Mortgage, borrowers with spotless credit will still need a minimum down payment of 3%. But the entire amount can come from any source other than someone who has an interest in the transaction. You can even borrow the down payment.

The loan amounts to 100% financing--unheard of in purchase-money mortgages. Homeowners can sometimes borrow up to 125% of their homes’ value, if they don’t mind paying double-digit rates. But home buyers usually have to put some of their own money into the house.

Dubbed the “credit-card mortgage� by some wags because you can charge the down payment to your Visa or MasterCard, this experimental loan has been available since late last year in Minneapolis and Dallas, and statewide in Washington and Iowa.

Recently, however, the test has been expanded to 14 more markets--Atlanta, Baltimore, Charlotte and Orlando in the Southeast; San Antonio, Phoenix, Kansas City, St. Louis and the border region in the Southwest; Columbus and Chicago in the Midwest; Connecticut and Philadelphia in the Northeast; and Reno in the West.

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San Bernardino is coming later this summer. And by the end of the year, the cashless loan also will be available in Miami, Houston, Cleveland, Detroit, Buffalo, Wilkes Barre, Pa., and Portland, Ore.

Of the 1,150 flex loans written to date, 56% have been used to buy houses at or below the median price in their respective areas, and 60% have been taken by first-time purchasers. But Fannie Mae has not placed any restrictions on the loan, so anyone can use it--even repeat buyers. And you can borrow up to $214,600.

Fannie Mae doesn’t make loans directly to consumers. Instead, it uses money from investors worldwide to buy loans made by local lenders. But it does dictate terms and conditions by telling lenders exactly which loans it will purchase.

Not all lenders in the above markets offer the flex loan. Usually fewer than 20 local and national firms in each market are involved. To find those in your area, call Fannie Mae at (800) 732-6643.

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Distributed by United Feature Syndicate.